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New crackdown on high-cost credit charges

The country's financial watchdog has proposed a package of measures to help consumers who are facing high-cost credit charges.
One of the main suggestions is a cap on prices in the household goods rent-to-own sector, with the Financial Conduct Authority (FCA) saying a consumer renting an essential such as an electric cooker costing €300 could end up with a €1,500 bill.
The FCA said it had "identified a need to intervene to protect financially vulnerable consumers in this market".Also for consideration on the table is a ban on the sale of extended warranties at the point of purchase, which the watchdog said could save consumers up to €7.7m each year.It said it would also be consulting on reforms to bank overdraft charges, door-step lending and catalogue credit and store cards "to help customers avoid persistent debt".FCA chief executive Andrew Bailey said: "High-cost credit is used by over three million consumers in the UK, some of who are the most vulnerable in society."Today we have proposed a significant package of reforms to ensure they are better protected including the possibility of a cap on rent-to-own lending."The proposals will benefit overdraft and high-cost credit users, rebalancing in the favour of the customer."
New crackdown on high-cost credit charges

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2.1 million people dipped into their overdraft at least once a month in 2016
The watchdog argues that the way banks operate and charge for overdrafts also needs "fundamental reform".In 2016 they raked in an estimated €2.3bn in revenue from overdrafts - 30% of which was from unarranged overdrafts.The FCA said it was considering several measures to make it easier for customers to manage their accounts, including mobile alerts warning of potential overdraft charges and stopping the inclusion of overdrafts in the term "available funds".Beyond that, it said it would also consult on the radical option of banning fixed fees.Mr Bailey added: "Our immediate proposed changes will make overdraft costs more transparent and prevent people unintentionally dipping in to an overdraft in the first place."The FCA has already taken action to curb credit card debt with a raft of new rules, which firms have been given until 1 September to comply with, in response to concerns about the level of unsecured debt.Greg Stevens, chief executive of the Consumer Credit Trade Association, welcomed the FCA's "cautious approach".
He added: The focus on overdrafts is welcome too: this is where the bulk of high cost borrowing takes place."Providing credit to low income consumers will always be an emotive topic."You can't simply wish-away the costs of servicing this customer group."The FCA gets this and it is taking its time to get the balance right."We are 100% committed to working with them to make sure consumers can get access to the credit they need on the best possible terms."
New crackdown on high-cost credit charges

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The FCA says the way banks charge for overdrafts needs reforming
But Martin Lewis, founder of moneysavingexpert.com, who described the current rules as "farcical", said the new rules were not strong enough.He said: "While rightly the cost of payday loans are capped (under the current rules), other short-term high-cost lenders are allowed to charge what they like - and many are far more expensive."This includes doorstep lending, rent-to-own and bank charges for busting your overdraft limit."While the FCA is thankfully considering capping rent-to-own costs, the rules should apply to all forms of short-term lending."Regardless of what type it is, a simple rule like 'no one should pay more interest than the amount they borrowed' for lending less than a year should be looked at."On overdraft fees, he said: "The changes today are a step in the right direction.
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"Stopping overdrafts being part of 'available funds' and reframing the language so that they are thought of as borrowing is right."After all, many people think credit cards are 'bad' and debit cards 'good' - yet if you're overdrawn a debit card is a debt card too. But whether simply relying on pushing competition and transparency is enough is questionable, regulating the costs for some of society's most vulnerable people should be considered."
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